Amazon Becomes Credit Card King Maker
June 23, 2018 by Douglas A. McIntyreIt is a simple offer. Make an order from Amazon Prime Now, its food and restaurant service, pay with an American Express Card and get $20 off. The same deal does not apply to those who use a Visa or MasterCard piece of plastic. Through some financial partnership the consumer cannot see, Amazon.com Inc. (NASDAQ: AMZN), the largest online retailer, is helping American Express Co. (NYSE: AXP), which, based on recent earnings, needs the business.
Amazon almost certainly gets a cut of what Amex would receive in a traditional transaction. Amex further builds its relationship with customers and takes a minuscule piece of business from its rivals. Maybe Amazon Prime members, who count above 100 million, will use their American Express cards for another and another purchase. The card may even become the default way the pay Amazon for every transaction.
The importance of the arrangement is boosted by industry numbers that show American Express has been blitzed by MasterCard and Visa in a market in which vendors get special deals to favor one card over others.
The partnership benefits Amazon even more. The main offer with the American Express promotion is Amazon’s grocery and restaurant delivery service. It is, however, only available in a few cities. Some Prime members will click on the promotion and be disappointed.
The most critical part of the transaction is that it is an early stage of its food delivery rivalry with Kroger and Walmart. Newly released quarterly numbers from Kroger Co. (NYSE: KR) show impressive online sales growth. Many experts thought Amazon’s grocery efforts, which include the purchase of Whole Foods, would leave the huge grocery chain flat-footed. It has not turned out that way. Amazon, not used to big competition in some of its most critical markets, has not been so fortunate in the food business.
The Amazon $20 discount for people who use American Express may be a better chess move for Amazon than Amex. However, in a credit card war in which it has fallen behind, it is a slim advantage.
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